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Victory!

* Anatole Kaletsky: Associate Editor of The Times* Professor Norman Stone: Professor of International Relations and Director of the Russian Centre at Bilkent University, Ankara.* Alexei Pushkov: Anchor of the most popular Russian TV programme “Post Scriptum” which has considerable influence on Russian public perception of international events.

Speakers against the motion:

* Edward Lucas: Central and Eastern Europe correspondent for the The Economist and author of The New Cold War: How the Kremlin Menaces Both Russia and the West (2008).

Thursday, April 30, 2009

[This piece was largely written by my excellent colleague in Prague, Katerina Zachovalova. Any mistakes are mine]

The Roma in eastern Europe

Canada home and dryApr 30th 2009 | PRAGUE From The Economist print edition

How Roma fleeing persecution win asylum in Canada

EMIGRATION to Canada was a well-trodden road for dissidents after the Soviet-led invasion of Czechoslovakia in 1968. It is 20 years since the country’s leaden communist regime perished in the velvet revolution. The Czech Republic is a regional success story. Yet rising numbers of Roma (gypsy) citizens are making the same journey to the same faraway country, because life at home is intolerable.

Around 250,000 Roma live in the Czech Republic. Their problems include poverty, lack of education, centuries of prejudice and, now, attacks by far-right extremists. According to the Canadian embassy in Prague, 861 Czechs applied for asylum in Canada in 2008, and 84 won it. Canada does not record their ethnic origin, but officials say most were Roma. That exceeds figures from countries such as Afghanistan (488 applicants) and Iraq (282). For communist Cuba, much scolded by the Czech government for its poor human-rights record, the figures were 184 applicants and 93 given asylum. The numbers for the first quarter of 2009 are even more startling: 653 applications, of which 34 were granted.

Admittedly, getting to Canada is easier for the Czech Roma than for Afghans or Iraqis (in October 2007 the Canadians lifted visa requirements for Czechs that had been imposed ten years earlier after a previous Roma exodus). But the figures are also higher than from other ex-communist countries with large Roma populations and visa-free travel to Canada. Last year only 288 Hungarians made applications, with 22 granted.

Some Canadian officials say asylum has become a business, with middlemen charging Roma to arrange it. But nobody has produced evidence of this, and the Czech authorities say they have seen no sign. Anna Polakova, who heads Romani-language public broadcasting in Prague, says the claims are absurd. She also questions the idea that Roma asylum applicants are motivated by Canadian welfare payments. “Even if you have little, your family has been here for two, three generations. You know the language. We have our graves here,” she says. In her view, it is middle-class Roma who are leaving in frustration. “Despite all the talk, the fascists are walking down the street.” She herself considered emigration after her son was badly beaten up by skinheads.

The Czech record is no source of pride. Not only has far-right extremism been rising, but so also is segregation. A government study in 2006 found that 80,000 Roma live in over 300 ghetto-like communities, four-fifths of which came into existence only in the previous decade. Roma activists blame Jiri Cunek, a Christian Democratic leader and former deputy prime minister, for making anti-Roma prejudice acceptable in mainstream politics. A mayor of Vsetin in the east, Mr Cunek ordered the eviction of dozens of Roma families from a run-down building in the town centre into containers on its edge.

Recently police blocked a confrontation between Roma activists and a neo-Nazi march in Krupka, in the north-west. Last November a similar event in Litvinov, in the north, turned into a riot, with police fighting 500 right-wingers trying to get to a Roma neighbourhood blamed as a hotbed of crime. A firebomb attack on a Roma dwelling in Vitkov, one of three in recent months, badly burnt a 22-month-old girl.

Roma are suffering in many other countries in the region. Hungary has witnessed a spate of especially nasty murders. But the rich, well-governed Czech Republic, which holds the European Union’s rotating presidency, can surely do better.

OVER the past ten years the European Union has failed to protect the continent’s energy security. Will it do any better when it comes to cyber-security?

At an EU conference on that subject in Tallinn on April 27th, participants wrestled with the need to act and the difficulty of deciding what exactly to do. The location was a suitable one: Estonia is the only EU member state to have suffered a full-scale cyber-attack, in April 2007. Amid a furious row with Russia about the relocation of a Soviet-era war memorial, a flood of bogus internet traffic disabled the country’s main websites, briefly shutting down vital public services and crippling businesses such as online banking.

Yet two years later, the EU and its member states are still wrestling with the issue. Knowing whether such attacks come from pranksters, hooligans, terrorists, criminals or an unfriendly government is difficult—sometimes impossible. But the potential damage is clear: everything from water and electric power to financial industries and retail distribution depends on the internet. The right combination of malicious code, stolen or hacked passwords and a badly designed system could mean catastrophe.

One temptation is to put lots of faith in expensive and gimmicky technical fixes. But as Scott Borg, an American expert attending the conference, pointed out, the starting point should be economics: without knowing the cost of, say, a 24-hour power shutdown as opposed to a six-hour one, it is hard to know what priority to give the means necessary to prevent it.

A simple form of defence is sharing information. But that requires trust. If news of a cyberstrike on a business leaks out, it can scare customers and send share prices plummeting. The last thing that business will want to do is announce that it has been attacked. Yet pooling knowledge strengthens everyone’s defences. Similarly, getting businesses and bureaucrats to share information runs into cultural barriers, as well as worries about confidentiality and legal liability.

So it is no surprise that countries with a high level of social trust are way ahead of the rest. Sweden, for example, will be staging its third bi-annual cyber-warfare exercise on May 6th and 7th, in which officials and businesses will practise coping with simulated attacks, some using live “ammunition”, and work out how they would keep the economy and public services going most effectively. Most EU member states are nowhere near that level. Some have yet to set up a national body, usually known as a computer emergency readiness team or CERT, to coordinate cyber-defences.

That makes a provisional plan to hold EU-wide cyberwar exercises by 2010 look ambitious. So is placing great hopes on a common regulatory framework to deal with cyber-security, for example setting clearer rules about identity on the internet. It is hard to imagine the “black hats” (the generic term for the bad guys) quaking at the thought of yet another fat document emerging from the Brussels bureaucracy.

One contentious idea discussed at the conference was whether to make internet service providers (ISPs) legally liable, at least to some extent, for the damage caused by the data they transmit. That might encourage them to police and protect their customers better. But given the scale of the potential risk, it is hard to see how any ISP could cope.

The best hope is that countries with the best cyber-defences keep innovating and coordinating their efforts, and that over time more states will join them. By most counts, they number roughly seven European countries, including non-EU Norway. For everyone else, some prudent supplies of bottled water, canned food and candles sounds sensible.

Friday, April 24, 2009

THE terms “left” and “right” and right don’t mean much in politics anymore and in the ex-communist world they are particularly confusing. Last week’s report in The Economist on Moldova described that country’s ruling Communists as a “centre-right” party, which attracted some sharp feedback. At first sight the idea of centre-right communists sounds as odd as “moderate Trotskyites” or “secular jihadists”. But most other conventional labels would fit the ruling crowd in Moldova worse.

The lamentably crude but sometimes convenient conventional political spectrum counts “left” (or sometimes “liberal”) as egalitarian, and thus sceptical of bankers and rich people, pro-social spending, pro-gay and dovish in foreign policy. “Right” (or sometimes “conservative” is pro-business, pro-family, and patriotically hawkish on defence and foreign affairs. That misses out whole chunks of the political debate. Are civil liberties a “left” or “right” issue? Cynics would say that it depends who’s in jail: Nelson Mandela drew most (but not all) of his support from one crowd, Aleksandr Solzhenitsyn from another.

The extremes still hold. It remains a safe assumption that ultra-leftists will sport the tattered remains of communist iconography (hammers, sickles, stars, AK-47s and the like). They will have complicated but enthusiastic views about Marxism and will hate everything America stands for. At the other extreme, ultra-rightists usually nurse sympathies for the Third Reich, hate Jews and most foreigners and want to restore their nation’s past glories. Both lots of extremists are riddled with squabbles and attract loonies.

The problem comes as you get closer to the middle. The political arguments in post-communist countries are not easily reducible into the classic left-right split. What do you call a party such as Vladimir Putin’s United Russia? In one sense it is profoundly conservative, in that it reveres the Orthodox church, dislikes public protest and hits every patriotic button in sight. But it has spawned a monstrous, predatory state bureaucracy and also shows a sweeping contempt for the rule of law. That is reminiscent of previous Kremlin tenants, one of whom, the arch Bolshevik and priest-murderer Vladimir Lenin, remains unburied on Red Square. Contemporary Russian history books even sanitise the Stalin legacy.

Similarly, the Moldovan Communists support business (particularly bits that benefit them) and have dumped Marx. They are keen on a strong Moldovan national identity (arguably another “conservative” point), and they certainly don’t want redistribution of wealth.

The ex-communist countries seem to need a different political grid, perhaps with multiple axes, rather than just the single one running from left to right. One axis on this grid would show whether the party defends or wants to change the status quo. Most Estonian political groupings are status-quo parties, for example. The Moldovan parties that want reunion with Romania clearly are not.

A second would concern rejection or nostalgia about the communist past. At one extreme would be, say Poland’s Law and Justice party, which affects to regard everything in and about the People’s Republic as a complete and utter sham (though this does not, it seems, include the academic qualifications that its leading members gained under that regime). Against that are parties that think that not everything that happened before 1989 was worthless. Hungary’s Socialists are a moderate example of that, the ruling party in Belarus a more extreme one.

A third axis would show corruption at one end and public-spiritedness at the other. Alina Mungiu-Pippidi, a Romanian scholar at the Hertie School in Berlin, compares parties in the eastern part of the region to medieval armies that “support themselves by plunder” by capturing state resources.

With five notches on each axis that makes 125 possible combinations. One of them should fit the Moldovan Communists.

A LOT like South Korea, a bit like Mexico and not at all like its neighbours. That is how Poland wants to be seen after it set up a $20.5 billion credit line from the IMF. This was not a bail-out like those for Ukraine, Hungary and Latvia. It was a precautionary and unconditional overdraft offered only to top-quality borrowers, say officials. The only other country to get similar treatment is Mexico.

A more flattering comparator is South Korea which, like Poland, has let its currency slide, while shunning the deficit-swelling policies of Britain and America. The zloty has fallen by 30% from its peak. The central bank has cut interest rates from 6% in October to 3.75%. Poland faces the crisis in a stronger position than many. Krzysztof Rybinski, a partner at Ernst & Young in Warsaw, points to consumption of 61% of GDP in 2008, close to Western levels. Rapid wage growth and low debt make consumers more robust.

This is partly luck. An overly tight monetary squeeze early in this decade headed off an asset-price bubble. Bureaucratic government checked the property boom; so did tough bank regulation that restrained the borrowing, chiefly in foreign currency, that plagues Hungary. “The things that you criticised Poland for in the past are now proving a blessing,” says a senior official.

The government’s gloomiest forecast is of a rise in GDP this year of 1.7%. Neil Shearing of Capital Economics thinks GDP is more likely to fall by 3%. Unemployment, swollen by returning migrants from western Europe, is already 11.2%. Exports have stalled. Industrial production in the first quarter was down by a tenth on a year ago. Ill-considered currency hedges have hit some firms. Tax revenues are sagging. The government’s efforts to prepare for euro entry by 2012 look “fairly futile”, says Mr Shearing. He thinks 2015 is more realistic.

Yet firms that survived the bureaucratic and other problems of the past 20 years are a resilient lot. Krzysztof Sklorz, whose Katowice-based company exports bricks and tiles, says zloty instability is a problem. But, he adds, “I took out a loan in euros and that’s what my clients pay me in as well, so that’s all right.” Unconsciously echoing Schumpeterian notions of creative destruction, Jozef Przyblya, a hotelier in another Silesian town, Pszczyna, says the crisis has weeded out the “weak and reckless”. The strong euro brings new guests from Germany and even Slovakia (now in the euro). One survey found that over 60% of big firms plan new investment this year. German subsidies to car buyers have stoked demand at Polish factories.

Unlike others in eastern Europe, Poland’s government is strong and stable. But its main contribution, says Marcin Piatkowski, a former IMF economist now at Warsaw’s Kozminski Academy, has been “brilliant PR”. Downplaying the crisis has been good for confidence, but doesn’t help promote much-needed reforms, he notes. One such is of bureaucracy: Poland comes 76th in the World Bank’s ranking for ease of doing business, below Kazakhstan. Mr Rybinski calls this “shameful”.

At least limited reforms to health care, pensions and the labour market are under way. One excuse is that President Lech Kaczynski vetoes laws put forward by a government he detests. Yet by the standards of the region, both Poland’s politics and its economy look pretty good.

Thursday, April 16, 2009

Why mediocrity flourishes and will only thrive furtherPOLITICAL freedom means that rulers tremble when voters grumble. Fine. But a healthy political system also needs an opposition that is able and willing to take power.

On that score, the outlook in post-communist countries looks rather bleak. Few have what sport journalists call a “long bench”—meaning a plentiful supply of substitutes who can take the field when the first lot of players are injured, exhausted or overwhelmed.

Hungary’s ex-communist rulers, for example, were dire, and a caretaker prime minister, Gordon Banjai (pictured below, foreground) has now taken over. But it requires quite a leap of faith to think that the likely winners in next year's election, the right-of-centre politicians of Fidesz, led by the volatile and idiosyncratic Viktor Orban, will be much better.

The same goes for the Czech Republic, where what should have been six months of glory running the EU has turned into a farce that disgraces everyone. In Latvia, almost all competent politicians (and some incompetent ones) are deployed on the pitch already. If the economic collapse overwhelms them, who will take their place?

Even countries with talented individual personalities in public life cannot necessarily say that they have a strong, credible opposition. Latvia has excellent journalists, NGO-niks and civil servants—but none of them are warmed up and ready to play on the political field. And individuals, even fit and ambitious ones, don’t make a team. Georgia’s opposition leaders are seasoned and eloquent. They have all, for reasons good and bad, quarrelled with the headstrong president Mikheil Saakashvili and want him to step down. But little else unites them.

So far, political systems across the post-communist world have done a poor job of ventilating pressing political issues, such as sharing the pain of the economic downturn. What will happen to firms and households in, say, Hungary or Romania, who have borrowed in euros and Swiss francs, and now cannot repay their loans? Should governments force foreign banks to reschedule the debts? Will taxpayers help? Or will the market and the legal system be left to take their course? If responsible politicians don’t discuss this, then irresponsible ones will.

Public figures in or close to politics who could credibly run the country are easy to spot in the biggest and the smallest of the new EU member states. Some of them, such as Leszek Balcerowicz or Mart Laar (ex-Polish finance minister and former Estonian prime minister respectively) even have international reputations. They may be the most conspicuous figures, but other impressive potential players are lurking near the substitutes’ bench, their kit already packed in their sports bags. Poland has heavyweight regional politicians, such as the mayor of Wroclaw, Rafal Dutkiewicz; Estonia has a crop of top-quality serving and former public officials, the fruit of the modernisation of public administration in the 1990s.

But for the most part, in most countries, the ebb and flow of sleaze, cynicism and apathy over the past ten years has washed talent out of the political system, while mediocrity has flourished.

Now the downturn makes the political game look even less attractive: bruising economic misery may be a fine spectacle, but it is not particularly tempting for participants. It is a good time to have a sinecure in academia, in a think-tank, or (best) in an international bureaucracy. But taking office means taking responsibility, at a time when even the most inspired political leadership may not bring much in the way of results. Fancy explaining to bewildered and resentful voters that their savings, jobs and hopes for the future are imperilled and that nothing much can be done about it? Please form an orderly queue.

IDEALISTIC youngsters demanding their country’s faster integration with Europe were a rarity even before the Moldovan authorities beat and jailed hundreds, and killed two, after a spree of protests against electoral fraud. But the limp European Union reaction to the crackdown will not encourage others to follow in their footsteps.

Few emerge with credit from the protests. Some participants rioted, storming and burning public buildings. The opposition parties loosely linked to the protesters are a lightweight lot with some questionable leaders. What unites them is anger over alleged ballot-rigging in the April 5th parliamentary election. The ruling Communists (in reality, a centre-right party) would probably have won even without bullying their rivals, skewing media coverage and inflating voter lists. With half the vote, they took 60 of the 101 seats in the unicameral parliament. This week, the government began an election recount.

Although the government consists mainly of competent technocrats, the crisis has shown that real power lies with President Vladimir Voronin, who is due to step down soon, and his cronies. The official reaction was striking, both in its brutality and in the contempt it showed for the EU, a large donor to Moldova, Europe’s poorest country. The authorities barred Western diplomats from visiting detainees. A limited UN-led investigation of 90 people in one jail found evidence of severe beatings and “inhuman” conditions. The corpse of Valeriu Boboc, a 23-year-old protester, was returned to his parents covered in bruises; the authorities say he was poisoned. A Moldovan journalist, Natalia Morar, is under house arrest. Amnesty International is championing her cause.

On April 15th Mr Voronin called unconvincingly for an amnesty for the protesters. In fact he blames foreigners, particularly Romania, which before the war included most of present-day Moldova. A vocal minority in Moldova wants reunification, partly for nationalist reasons and partly to speed up progress towards entry into the EU. The Romanian president, Traian Basescu, has ordered an acceleration in the issue of passports to Moldovans. The mutual hatred between him and Mr Voronin (who sees dual citizenship with Romania as treason) is intense. Moldova has brought in visas for Romanians, expelled the Romanian ambassador and stopped Romanian journalists entering the country. The (Latvian-born) director of the National Democratic Institute, an American outfit, faces deportation.

The EU is quietly trying to act as an intermediary, but some diplomats say its intervention could make things worse. Russia is dangling a deal over Moldova’s most industrialised region, Transdniestria, whose separatist regime it sponsors. This is meant to encourage Mr Voronin to lean east. Against this background, Moldova’s pro-Western camp finds the EU’s reaction to the attack on the protesters spineless.

The feeble international response to the behaviour of the Moldovan authorities contrasts with events in another ex-Soviet republic, Georgia. Opposition demonstrators there have been demanding the resignation of President Mikheil Saakashvili. Having blundered in a heavy-handed crackdown against similar protests in November 2007, the Georgians handled this week’s demonstrations with punctilious attention to outside opinion. That cuts little ice with the opposition, which believes that Mr Saakashvili is authoritarian, nepotistic and incompetent. The main evidence for this last charge is his disastrous war with Russia last summer. But by ex-Soviet standards, Georgia’s economy is strong and its political system free and open.

The Georgian opposition has several heavyweight ex-allies of Mr Saakashvili. They include a former speaker of parliament, Nino Burjanadze, a former foreign minister, Salome Zourabichvili, and a former ambassador to the United Nations, Irakli Alasania. Even if they squabble, that is a galaxy of talent compared with Moldova. Many of Georgia’s foreign well-wishers are fed up with the erratic behaviour of the president. But for now at least most Georgians prefer imperfect stability to revolutionary upheaval.

Thursday, April 09, 2009

RICH and powerful people in Russia and Ukraine clearly find the “Pridnestrovian Moldavian Republic”—more commonly known as Transdniestria—a useful entity. If they didn’t, they would close it down. That is something that the European Union, the Organisation for Security and Cooperation in Europe and others like to point out in a finger-wagging kind of way. The puppet states of South Ossetia and Abkhazia are the same. A flick of the switch would turn off the power. A turn of the tap would stop the gas. A telephone call would close the border. And the regimes would fall soon afterwards.

It would be nice to think that dodgy microstates are strictly a post-Soviet phenomenon. In the law-governed space east of the pre-war Soviet frontier, all countries, surely, are real. Their financial systems are transparent. They abide by their international obligations. Their political systems are accountable.

Yet look closely at the three European countries still listed as “non-compliant” (in other words, tax havens) by the Organisation for Economic Cooperation and Development (OECD), and some striking features emerge. Andorra, Liechtenstein and Monaco have a combined population of about 130,000—rather more than South Ossetia, but far less than Abkhazia or Transdniestria. Liechtenstein’s Prince is the last secular feudal ruler in Europe, with the right to veto legislation he doesn’t like. The Vatican, of course, is not a democracy at all (but as it is not a financial centre either, it escapes any criticism on that front).

Clearly, if countries such as France and Germany offered simpler and user-friendlier tax and legal regimes, some of the microstates’ advantages would diminish. But the real point is the symbiotic relationship between the microstates and the big countries. Liechtenstein depends entirely on Switzerland and Austria, Andorra on Spain and France, and Monaco on France alone. None of the three tiddlers would survive for a minute without the cooperation of their neighbours.

It is encouraging that the authorities in all three microstates now profess great eagerness to sort out their remaining misunderstandings with the OECD and get their countries off that organisation’s bad books. But it is troubling that it has taken a decade to bring them this far. Part of the reason may be that Switzerland and Austria themselves are not wildly enthusiastic about tax compliance. But what explains the curious benefits enjoyed by Monaco, which enjoys its charmed life thanks only to the cooperation of France?

Casting an eye further afield, it is also interesting that Britain’s offshore islands (Guernsey, Jersey and the Isle of Man, as well as the Caribbean crown dependencies such as the British Virgin Islands) have managed to develop as financial centres so easily, despite the losses to the exchequer in London. Suspicious minds might wonder if these places are so useful to British business that no government wants to go to the trouble of closing the loopholes they provide.

On tax transparency at least, the tide now seems to be turning against countries that are, in some respects, western versions of Transdniestria. On the equally important question of ownership, it is far from clear that real change is afoot. It is still possible to use a web of companies in these places to deter nosey outsiders wanting to know who owns what. Such anonymous entities may soon be forced to pay more tax, but it will not be any clearer who owns them. That scandal erodes the moral authority of the West in demanding that corrupt elites in places such as Russia and Ukraine bring their offshore entities into the light of day.

Hunting Eichmann: How a Band of Survivors and a Young Spy Agency Chased Down the World’s Most Notorious NaziBy Neal Bascomb

Houghton Mifflin Harcourt; 400 pages; $26. To be published in Britain by Quercus in SeptemberBRINGING old Nazis to justice was not a priority in the immediate aftermath of 1945. The three Western powers wanted to turn their zones of Germany into the Federal Republic, a functioning cold-war ally. Justice was delayed, denied or tied up in bureaucratic knots. But did that shabby, perhaps shameful compromise justify Israel’s action in kidnapping Adolf Eichmann from Argentina in 1960 and putting him on trial in a country that did not exist at the time when he was planning and executing the Holocaust?

The unspoken assumption of Neal Bascomb’s book is that the Israeli secret service’s daring and risky plan was not only heroic and skilful, but also justified. It starts by retelling the long and frustrating hunt for Eichmann, whom sympathisers had helped flee to Argentina after the war (a shocking tale in itself). It was a chance remark by one of his sons to a girlfriend who, unknown to him, was half-Jewish, that gave the first clue. Even so, it took years to follow up.

Those who like to believe that Mossad, the Israeli secret service, is the epitome of spookish efficiency may find themselves blinking at some of the mishaps and near-disasters that its posse encountered in Argentina. Clumsy snooping alarmed the Eichmanns, though not enough to prompt them to go into hiding. Having caught their quarry, the Israeli spy chiefs risked detection by ordering a further, madcap attempt to find another fugitive Nazi, Josef Mengele, a doctor responsible for hideous experiments at Auschwitz.

Nonetheless, the operation was both daring and brilliant. Eichmann was snatched from the street on his way home from work. One of the kidnappers—in an unplanned move—managed to persuade him that it would be to his advantage to stand trial in Israel, and put his side of the story. He boarded an El Al plane without protest, disguised as a crew member.

Mr Bascomb’s understandable distaste for his subject does not prevent him giving a good flavour of Eichmann’s slippery arguments once he went on trial: sometimes denying that he did anything wrong, sometimes saying he was only obeying orders, sometimes pleading other extenuating circumstances. He brings out well the paradox of Eichmann’s genuine interest in Jewish history and culture (he greeted his captors with a Hebrew prayer), and the abominable crimes he committed.

Argentina, in those days infested with Nazi sympathisers, was furious at Israel’s action. So were some other countries. Israel was unrepentant. The book spends a bit too long on the minutiae of the hunt and skates rather too quickly over the legal and ethical issues that it raised. Was it really so impossible to put Eichmann on trial in West Germany? The book criticises the prosecution’s conduct at the trial, but with a frustrating lack of detail. A bigger flaw is the re-creation of dialogue 50 years on, a trick that gives the narrative immediacy but erodes the credibility that the author’s research has earned.

Eichmann himself comes across as a pathetic figure, dwarfed both by the evil he committed and the efforts made to catch him. Like most of his fellow Nazis, he was monstrous only when fate gave him power. Without it, he was just a crotchety émigré with unpleasant views on Jews. Yet the story remains a gripping one: the shadowy world of ex-Nazis hiding away in a far-off continent, Germany’s own struggle of memory against forgetting, and a young country’s clamorous desire for justice.

Hunting Eichmann: How a Band of Survivors and a Young Spy Agency Chased Down the World’s Most Notorious Nazi.By Neal Bascomb.Houghton Mifflin Harcourt; 400 pages; $26. To be published in Britain by Quercus in September

[sorry for lack of activity. I am taking longer than expected to get over my hospital excursion]The troubled Baltics

Still afloat in the Baltic, just

Apr 8th 2009 | TALLINNFrom The Economist print edition

The three Baltic economies face a spiralling economic downturn

ONCE the fastest-growing economies in Europe, the three Baltic countries are now the opposite. Latvia, which in December received a €7.5 billion ($10 billion) bail-out led by the International Monetary Fund, is basing its budget on a 13% decline in GDP. Estonia and Lithuania expect a decline of a tenth. A conventional response might be devaluation and fiscal stimulus. But the Baltics’ currency pegs to the euro are a matter of national pride. Moreover, most private borrowing is in euros, so devaluation would mean beggary for many. Instead, the response has been wage cuts meant to regain competitiveness.

Fiscal stimulus is tricky too. Estonia ran a budget surplus during the boom, so has some room for manoeuvre, but even it can risk only a deficit of 3% of GDP permitted by the rules for joining the euro. All three countries want to adopt the single currency as soon as possible, though not by bending the rules: the whole point is to gain credibility, not to enter the club “on a stretcher”, as one official puts it. But as economies shrink, it gets harder to meet deficit targets. Latvia’s new government has been haggling over a 5% ceiling agreed with the IMF, missing last month’s €200m instalment of the bail-out as a result.

The Baltics have no shortage of external support. The European Bank for Reconstruction and Development this week agreed to bail out Parex, a Latvian bank. The IMF has more money to help. But the economic adjustments are still unimaginable in old Europe. Having soft-pedalled reform after joining the European Union, the Baltics now have to make up for lost time, in a climate where they are perilously exposed to the global downturn.

Belatedly, some progress is visible. Inflation and current-account deficits are falling. Latvia has begun unpicking a network of sinecures in nationalised industries. But overdue reforms such as simplifying local government in Estonia are still on hold. Yet compared with the polarised politics and debt-soaked economy of Hungary, the Baltics’ outlook is not bad. None of the three is much exposed to the international financial markets. Their stocks, bonds and currencies are thinly traded. Most of their external debt is owed by local bank branches of Swedish parents. Bits of those loan books have soured, particularly in property and construction. But other parts are still sound. So long as the Scandinavian banks stand by their investments, the Baltics should be all right.

Public protests have been muted and peaceful except for two bust-ups in Lithuania and Latvia. Estonia’s politics look the most solid, with a well-regarded coalition government. Latvia’s government, in office for just a month, is more broadly based than its predecessor and has shed some incompetent figures. Lithuania faces a presidential election in which the front-runner is the EU budget commissioner, Dalia Grybauskaite. Her financial skills may soon be tested, since after the election Lithuania may well turn to the IMF for help.

Belatedly, some progress is visible. Inflation and current-account deficits are falling. Latvia has begun unpicking a network of sinecures in nationalised industries. But overdue reforms such as simplifying local government in Estonia are still on hold. Yet compared with the polarised politics and debt-soaked economy of Hungary, the Baltics’ outlook is not bad. None of the three is much exposed to the international financial markets. Their stocks, bonds and currencies are thinly traded. Most of their external debt is owed by local bank branches of Swedish parents. Bits of those loan books have soured, particularly in property and construction. But other parts are still sound. So long as the Scandinavian banks stand by their investments, the Baltics should be all right.

Public protests have been muted and peaceful except for two bust-ups in Lithuania and Latvia. Estonia’s politics look the most solid, with a well-regarded coalition government. Latvia’s government, in office for just a month, is more broadly based than its predecessor and has shed some incompetent figures. Lithuania faces a presidential election in which the front-runner is the EU budget commissioner, Dalia Grybauskaite. Her financial skills may soon be tested, since after the election Lithuania may well turn to the IMF for help.

THE poorest country in Europe is used to being neglected by the rest of the world. But protests against vote rigging in elections held on Sunday April 5th brought Moldova some attention this week. In the past few days youthful demonstrators, who were organised via Twitter and other social-networking sites, stormed parliament and the presidential offices in the capital city, Chisinau. Some threw rocks, broke windows and started fires. As the police belatedly tried to restore order, scores were injured and one person died. Nearly 200 people had been arrested by Wednesday. Amid allegations of foreign mischief-making, Moldova expelled the Romanian ambassador.

The immediate issue is the election result, in which the ruling Communists won a majority in the single-chamber parliament. The election was declared fair by outside monitors, who assessed what happened on the day, but the composition of electoral registers looks dodgy, as does the overwhelming support that the Communists enjoyed from the main media.

The protesters are loosely tied to established opposition parties. They are cross about the election and even more annoyed by the outgoing president, Vladimir Voronin. Mr Voronin has stated that, although he would step down in accordance with the constitution’s term limit, he would stay in politics as a “Moldovan Deng Xiaoping”. That seemed to suggest no change from the economic and strategic failures of the past two decades, which have seen Moldova’s 4m population languish in a geopolitical limbo between Russia and the European Union. Most Moldovans favour Europe but the political elite, mainly Soviet-trained and Russian-speaking, has found it hard to break old ties and habits.

Mr Voronin has wobbled in both directions. Of late he has seemed to favour ties with Moscow, chiefly because a deal with the Kremlin seems to offer the only hope of solving the frozen conflict with the self-declared state of Transdniestria. This densely populated and industrialised sliver of land on the eastern bank of the Dniester river has maintained an unrecognised independence since a brief civil war that finished with Russian intervention in 1992. Western attempts to resolve that debilitating impasse have got nowhere, whereas Russia has kept up a stream of initiatives.

With decent leadership and goodwill on all sides, it would be possible to have friendly relations with both Russia and the EU. But Moldova’s leaders have ended up with the worst of both worlds, ignored by the EU and bamboozled by Russia.

The most divisive question is relations with Romania. The Moldovan Soviet republic, which gained independence in 1991, was carved out of pre-war Romania in 1940, as a consequence of the Hitler-Stalin pact; Transdniestria, always in Russian hands, was bolted on. Nico Popescu, of the European Council of Foreign Relations, says that demands for closer ties with Romania have strengthened in recent years, as that country’s EU membership has contrasted ever more sharply with Moldova’s status as a “semi-failed state”. As well as EU flags, some protesters this week carried Romanian ones.

That has infuriated the Moldovan authorities. They find it much easier to fight the bogeyman of Romanian revanchism and chauvinism than defend their own dismal record in office. Andrei Popov, of the Foreign Policy Association, a Moldova-based think-tank, believes that the authorities may even be exaggerating the pro-Romanian element in the protests in order to discredit the opposition’s wider political demands.

There is little evidence that Romania has made a big effort to undermine Moldova. Romanian politicians, notably the president, Traian Basescu, have made grandiloquent and tactless statements. The mutual detestation between him and Mr Voronin is legendary. One practical Romanian policy has proved controversial: allowing Moldovans with roots in the pre-war Romanian state to apply for passports.

The political upheavals cry out for attention from the EU, which has failed to get to grips with Moldova’s ills. As with Ukraine’s orange revolution five years ago, it may take a heavyweight outsider to get talks going between entrenched but discredited authorities and an enthusiastic but incoherent opposition. If Europe cannot solve Moldova’s problems, it is hard to see much future for the trumpeted “Eastern Partnership” which is meant to reinvigorate EU policies towards the six ex-Soviet countries on its eastern borders.

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Regards

Edward

Bene Merito award

Without my foreknowledge, I was last year awarded the Bene Merito medal of the Polish Foreign Ministry. Although enormously honoured by this, I have sadly decided that I cannot accept it as it might give rise to at least the appearance of a conflict of interest in my coverage of Poland.

About me

"The New Cold War", first published in February 2008, is now available in a revised and updated edition with a foreword by Norman Davies. It has been translated into more than 15 foreign languages.
I am married to Cristina Odone and have three children. Johnny (1993, Estonia) Hugo (1995, Vienna) and Isabel (2003, London)